HQ 0111321 - Vessel Repair; Cleaning; Inspection; Access to Repairs; M/V MARINE PRINCESS V-42; Entry No. C20-0026947-5; 19 U.S.C. 1466. - United States International Trade Commision Rulings

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HQ 111321

February 19, 1991

VES-13-07/18 CO:R:IT:C 111321 JBW

CATEGORY: CARRIER

Deputy Assistant Regional Commissioner
Commercial Operations c/o Regional Commissioner
New Orleans, LA 70130-2341

RE: Vessel Repair; Cleaning; Inspection; Access to Repairs; M/V MARINE PRINCESS V-42; Entry No. C20-0026947-5; 19 U.S.C. 1466.

Dear Madam:

This letter is in response to your memorandum of September 25, 1990, which forwards for our review and ruling the above- referenced application for relief from the assessment of vessel repair duties.

FACTS:

The record reflects that the subject vessel, the MARINE PRINCESS, arrived at the port of New Orleans, Louisiana, on May 26, 1990. Vessel repair entry, number C20-0026947-5, was filed on the same day as arrival and indicated foreign shipyard work. The vessel owner filed an application for relief on July 20, 1990. The application requests relief for numerous invoice items; you have requested that we address the following issues.

ISSUES:

(1) Whether costs for cleaning are dutiable under 19 U.S.C. 1466 (1988) if such costs are attributable to both dutiable repairs and non-dutiable inspections where such costs are not segregated.

(2) Whether costs for accessing dutiable repairs are dutiable.

(3) Whether costs for tests performed to ascertain whether dutiable repairs were properly made are dutiable.

LAW AND ANALYSIS:

Title 19, United States Code, section 1466, provides in pertinent part for payment of duty in the amount of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to engage in such trade.

The applicant claims that certain costs for cleaning, which appear on the Sembawang Shipyard invoice, are not dutiable. The Customs Service has consistently held that cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs, which includes painting and coating, or is an integral part of the overall maintenance of the vessel. E.g., Headquarters Ruling Letter 110841, dated May 29, 1990 (and cases cited therein). Moreover, where dutiable and non-dutiable costs are not segregated within an invoice item, all of the charges in that invoice item must be deemed dutiable. Headquarters Ruling Letter 108567, dated September 10, 1986. Costs for cleaning that have no nexus to repairs must be separately itemized to avoid duty.

The following cleaning costs appear on the Sembawang Shipyard invoice with other costs for repairs. From the invoice and the contractor's specifications, we are unable to determine whether or not these costs are wholly attributable to non- dutiable work; we therefore find these cleaning costs to be dutiable:

Item D-30: Tailshaft After Seal
Item E-4: Air Intake Valves
Item E-5: Main Engine Fuel Injectors
Item E-8: Main Engine Fuel Pumps
Item E-25A-E: Heat Exchangers
Item E-28: Centrifugal Pumps
Item E-29: Alternator Cleaning
Item E-31: Switchboard, Controllers and Generators Item H-10: Deck House Coating and Blasting

We have held that cleaning in preparation for cement washing is dutiable. C.I.E. 18/48. Consequently, cleaning costs for Sembawang Shipyard invoice number E-27 are also dutiable.

Two items appearing on the Sembawang Shipyard invoice indicate that costs were incurred for the removal and replacement of parts of the ship in order to access dutiable repairs. These costs, the applicant contends, are not dutiable. We have held, however, that where accessing work is integral to dutiable repairs, then the accessing work is itself dutiable. Headquarters Ruling Letter 108366, dated March 4, 1987. Items D- 28 (Cargo Hold Bilge Piping) and E-9 (Main Engine Rotary Exhaust Valves) show costs for accessing dutiable work. We therefore find these costs to be dutiable.

The applicant claims that testing performed in conjunction with dutiable repairs made to the main engine air coolers (Sembawang Shipyard invoice no. E-7) and that ultrasonic gauging made in conjunction with steel repairs are not dutiable. Customs has held that inspections not resulting in repairs are not dutiable. Headquarters Ruling Letter 110395, dated September 7, 1989; see American Viking Corp. v. United States, 37 Cust. Ct. 237, 247, C.D. 1830 (1956). However, where an inspection is performed to ascertain whether repairs were properly performed, then those inspection costs are dutiable regardless of the nature of the inspection. C.I.E. 429/61; C.S.D. 79-2, 13 Cust. B. & Dec. 993 (1979). We find that inspections performed as part of these two tests are dutiable.

As part of your memorandum, you state that the drydocking specifications call for the application of a preservative coating to the anchor chains (Item D-6) and that this work should be dutiable. While we agree with your substantive analysis, we note that the invoice states that, for this item, the specifications were cancelled as written, and the work was carried out as described in the invoice. The invoice does not indicate that the coating of the anchor chains was performed. We thus conclude that the work performed as part of this item is non-dutiable.

Finally, the vessel owner seeks relief for certain items listed on the American Bureau of Shipping invoice #644857. Included among the charges listed is a charge for $250 for expenses. Because some of the costs listed on the invoice are dutiable, the cost for expenses must be segregated between the dutiable and the non-dutiable charges. Since these charges are not segregated, the entire amount is dutiable.

HOLDINGS:

(1) Cleaning is not dutiable unless it is performed as part of, in preparation for, or in conjunction with dutiable repairs, which includes painting and coating, or is an integral part of the overall maintenance of the vessel. Costs for cleaning must be properly segregated to avoid duty consequences for cleaning costs related to non-dutiable work. The costs for cleaning, as outlined above, are therefore dutiable.

(2) Where accessing work is integral to dutiable repairs, then the accessing work is itself dutiable. Costs for accessing dutiable repairs appearing in Sembawang Shipyard items D-28 and E-9 are therefore dutiable.

(3) Where an inspection is performed to ascertain whether repairs were properly performed, then those inspection costs are dutiable regardless of the nature of the inspection. Tests performed as part of Sembawang Shipyard invoice item E-7 and the Shin Toyo Engineering appear to be in the nature of inspections performed to ascertain whether dutiable repairs were properly performed and are consequently dutiable.

Finally, we determine from the facts presented that a preservative coating was not applied to the anchor chains. This item (Sembawang Shipyard Invoice Item D-6) is not dutiable. We find, however, that non-segregated expenses appearing on the American Bureau of Shipping invoice #644857 are dutiable.

Sincerely,

B. James Fritz
Chief

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